Citigroup cuts Apple rating, predicts sales of 18.8M iPods in Q4

Analysts for Citgroup on Monday said they expect Apple Computer to sell as many as 18.8 million iPods during the December quarter, but cut their rating on shares of the company to "Hold" from "Buy" due to a lack of potential revenue upside in the near term.

"The sum of a week’s worth of Asian data points suggests little potential for upside to consensus revenue estimates for either the September or December quarters," analyst Richard Gardner told clients in a research note on Monday."While we are modestly raising our September and December quarter revenue estimates, our new estimates are not meaningfully above current consensus."

For the third calendar quarter ending September, the analyst increased his revenue estimate from $4.63B to $4.68B to reflects stronger-than-expected MacBook sales. He said MacBook sales for the quarter are now tracking close to 575,000 units compared to his previous estimate of 540,000 units. He is also modeling for sales of 9 million iPods during the quarter, including 5 million iPod nanos and 1 million iPod shuffles.

18.8M iPods and 1M notebooks in Dec. quarter

Similarly, the analyst upped his fourth calendar quarter (ending December) revenue estimate from $6.31B to $6.47B on expectations that both MacBook and iPods sales will track significantly higher. "We have raised our MacBook shipment estimate from 600K to 675K and our overall laptop shipment estimate from 925K to 1.0M, " he wrote. "We have raised our iPod shipment estimate from 16.0M to 18.8M to reflect an increase in “nano” shipments from 8.5M to 10.0M and an increase in “shuffle” shipments from 2.5M to 4.0M."

No "real" video iPod this year

Meanwhile, Gardner said his checks now indicate that a video iPod with larger screen and virtual Click-Wheel is unlikely to make an appearance before the peak holiday season. "The iPod line announced on September 12 appears to be the line that will have to carry Apple until MacWorld San Francisco in January," he wrote. "This is likely to disappoint some investors who are still expecting at least one more new product before the peak holiday selling season."

No iPhone at Macworld, 25M sales estimates too bullish

Gardner also said checks suggest volume availability of an Apple-branded mobile phone is unlikely until later in the first calendar quarter of 2007 or early in the second quarter. "Given that Apple’s phone will almost surely cannibalize a portion of iPod nano sales, we doubt management will introduce the product at Macworld San Francisco in January, a full quarter ahead of availability, for fear of negatively impacting nano sales," he explained. "We also believe Apple’s phone sales will be limited to the U.S. market during the initial 6-12 months and that the product be relatively expensive -- in the top 25th percentile of the current phone industry range --suggesting that recent press reports of up to 25M units during the first year are significantly too bullish."

"We might reconsider our Hold rating and potentially become more interested again for fresh money, all things being equal, on a pullback below $71, at which point the shares would offer 20 percent upside to our 12-month target," Gardner continued. "We believe the lack of additional new products through year-end and the lack of a phone announcement in January could provide such an opportunity."

Despite cutting his rating on Apple, Gardner increased his price target on shares of the company from $80 to $85.

"Given that Apples phone will almost surely cannibalize a portion of iPod nano sales, we doubt management will introduce the product at Macworld San Francisco in January, a full quarter ahead of availability, for fear of negatively impacting nano sales," he explained. "We also believe Apples phone sales will be limited to the U.S. market during the initial 6-12 months and that the product be relatively expensive -- in the top 25th percentile of the current phone industry range --suggesting that recent press reports of up to 25M units during the first year are significantly too bullish."

How expensive does the iPhone have to be to qualify as "relatively expensive", in the U.S.? (not familiar with cell phone pricing schemes in the States)

if that is in the price range of the nano, then yes, could take away some sales. Then again, they are different business models as some cell phones require that you sign up for a plan and the main purpose of the device is different. It might not be the same crowd going for the nano. It all depends on how well Apple integrates music playing with the phone. Battery life is a concern I have.

It all depends on how well Apple integrates music playing with the phone. Battery life is a concern I have.

I'd be surprised if Apple is going to release a Phone.

They'd rather make the video iPod iChat ready so one could communicate from his video iPod with people using Macbooks etc. An iPod with build in iSight would therefore make all the other existing music Phones obsolete.

So, forget about the current phone companies. Speech should be free and Apple has the software to do so!

The news item on yahoo finance makes more sense - he thinks that revenue growth will slow from 37% down to 12% over the next two years. This slowdown in revenue growth is what prompted the downgrade - the higher expected revenue next quarter is not important in comparison.

I bought one of those little 2G shuffle though Nov 7 is the delivery date. That should add to the pile.

One thing I notice more and more are people with the Borg implanted bluetooth headsets. I just often feel the urge to rip the sucker out of their ears. Though it would be cool if the 3G shuffle was just an ear piece like that, and of course with a second ear phone. Nah, I'd want to rip that out of peoples' ears too.

I bought one of those little 2G shuffle though Nov 7 is the delivery date. That should add to the pile.

One thing I notice more and more are people with the Borg implanted bluetooth headsets. I just often feel the urge to rip the sucker out of their ears. Though it would be cool if the 3G shuffle was just an ear piece like that, and of course with a second ear phone. Nah, I'd want to rip that out of peoples' ears too.

Apple could easily make a shuffle that small, the main problem would be the need for an additional device to control it.

I totally agree with you about the Borg people though, This past Easter Sunday, there was a guy directly in front of me in church with the Bluetooth headset in his ear during the whole mass, blinking its stupid, distracting blue light every 5 seconds. I mean is he actually going to answer the phone if it rings? If not, he can't spend the requisite 2 seconds to remove it and leave it in his car and relax for at least one hour on a Holiday Sunday?

Actually I have a very good idea of how market forecasts work. Which is why I also feel that it is better to rely on my own judgment than make decisions based on their recommendations. This whole report was nothing but common sense observations made based on information which is available to almost everyone. This is information which is largely based as SpamSandwich stated "on unfounded rumors, hearsay, conjecture and speculation." The fact that he is raising his targets for revenue, unit volume and share price while lowering his recommendation is in itself at least somewhat contridictory. I understand completely the time frames involved, but I also understand that he would love to knock the stock down to $71 so that 'someone' could pick up shares then change his rec to buy and look like a genius when it hits the $85 target within 12 months.

I have been active in the market for over ten years through all the hype of the bubble market and have found these professional market forecasts to be completely unreliable and often idiotic. I watched as they rated any dogshit stock with ".com" in the name as a strong buy as losses continued to grow every quarter with no viable plans for turning it around and making a profit. They then cut their ratings only when it was blindingly clear that the companies were going out of business. I ignored their rantings and focused on my own long term strategy and came out unscathed.

Also, I have recognized bottoms in this stock on a consistent basis both in my own trading and on this message board at the same time when these so called 'professionals' were cutting recommendations and issuing 'warnings". I am holding this stock long term and am sitting on a very comfortable profit with a total average cost basis of 35.59 per share (the cost basis went up when I picked up a bunch more shares in the 50's), so I am not very concerned with short term fluctuations. I continue to be very optimistic about this stock, there are many more opportunities for growth ahead.

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Originally Posted by MacCentric

07-12-2006, 05:14 PM \t #5
MacCentric
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Join Date: Apr 2005
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This is the analysts making themselves a nice buying opportunity before Apple blows away estimates next Wednesday. I think this may be the lowest you will ever be able to get Apple stock. This will give those analysts involved good bonuses when the stock reaches 90 after their company picked up large blocks at 53.

I bought one of those little 2G shuffle though Nov 7 is the delivery date. That should add to the pile.

One thing I notice more and more are people with the Borg implanted bluetooth headsets. I just often feel the urge to rip the sucker out of their ears. Though it would be cool if the 3G shuffle was just an ear piece like that, and of course with a second ear phone. Nah, I'd want to rip that out of peoples' ears too.

Which reminds me that not only will Apple make a mint on the cell phone(s) (when they are realeased) but they will also make a killing on accessories.
When Apple comes out with a phone, you know there is going to be an amazing bluetooth headset to go with it and don't forget the fine Italian leather case and car charger.

They'd rather make the video iPod iChat ready so one could communicate from his video iPod with people using Macbooks etc. An iPod with build in iSight would therefore make all the other existing music Phones obsolete.

So, forget about the current phone companies. Speech should be free and Apple has the software to do so!

I bought one of those little 2G shuffle though Nov 7 is the delivery date. That should add to the pile.

One thing I notice more and more are people with the Borg implanted bluetooth headsets. I just often feel the urge to rip the sucker out of their ears. Though it would be cool if the 3G shuffle was just an ear piece like that, and of course with a second ear phone. Nah, I'd want to rip that out of peoples' ears too.

i am one of them, please don't rip mine off! honestly, those things are awesome. you don't even have to touch your phone. just keep it nearby and talk. i feel like it doesn't belong to this time. looks like a back to the future part II toy.

They've had a full year since the last iPod generation, and all they've done it bump the drive to 80GB and add a newer screen part. Firmware-wise, gapless playback is desirable, but it's hardly a radical new feature, esp. as most of us who wanted it had worked out ways around it anyway (chapterized continuous symphonies, etc).

And the nano... stuck the same circuit board in a set of anodized aluminum cases. Period.

As someone who has owned EVERY gen iPod since 2001, and currently has a 60GB 5G iPod and 4GB nano, there's absolutely nothing for me to buy/trade-up-to this Christmas that, bar some very minor firmware tweaks, doesn't offer exactly the same as what was on offer last Christmas.

I'll admit market saturation probably hasn't been reached and there are probably some iPod-less buyers who still just want the old-gen stuff, and that Apple can trade off its "cultural icon" status for a while, but I still feel a bit disappointed that Apple isn't pushing the envelope faster.

I repeat, a full-year to go next generation and add genuinely new features, but they've let the tacky-design-but-feature-rich Zune effectively herald the next generation instead.

They've had a full year since the last iPod generation, and all they've done it bump the drive to 80GB and add a newer screen part.

I agree for the most part, but the battery life is lengthened too, so that improves a major bullet point. But with no noticible design difference, it might look mundane or at least like the same old unit at a glance and be assumed to be the same old thing without anyone noticing. The price drop might help offset that as well though.

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And the nano... stuck the same circuit board in a set of anodized aluminum cases. Period.

It's not the same circuit board. And the screen is brighter, with longer battery life. And I wouldn't underestimate the power of the style and color choices. Remember that the mini was the most popular portable audio file player ever, before the first nano.

Adding new features (at least adding HUGE features with every update) isn't that important. The iPod is a mature product, it's pretty damn good already. The main areas for improvement are size, capacity, and battery life, and Apple keeps those going up.

There are still tons of people with no mp3 player, or with an early iPod, or looking for a second one. Upgraders are a minority, and apple can have huge sales without trying to put on new bells and whistles just for the sake of it. And those sales aren't "cultural icon" silliness, it's because it's the best mp3 player you can buy right now. I don't see what's so important about upgrading, you have two great mp3 players, why don't you just enjoy them instead of getting tech envy.

The whole race for innovation thing just doesn't make sense to me. Is most/newest features the most important thing when buying a TV? A car? A blender? Or do you buy the one that works the best?

And zune has more features, but I'm skeptical that any of those features are compelling enough that people would buy it. "Feature rich" to me implies *good* features. Other mp3 players have tried to compete by having more bullet points, and consumers just don't care. Especially when the user interface is inferior - I'll take the click wheel over buttons any day.